* Euro hits 2-month high vs dollar on EFSF bond demand
* World stocks steady after rising 2 sessions in a row
* Weaker euro zone bonds hit after Spanish bank announcement
By Dominic Lau
LONDON, Jan 25 (Reuters) - The euro hit a two-month high
before easing a little on Tuesday, bolstered by strong demand
for the euro zone rescue fund's first bond sale, while world
stocks held steady.
The European Financial Stability Facility (EFSF) launched
its first sale of bonds, with market sources saying demand, at
48 billion euros, dwarfed the 5.5 billion on offer.
"Sentiment is positive for the major currencies against the
greenback. The euro may be further supported if demand proves
strong and the EFSF bonds are oversubscribed as expected," said
Roberto Mialich, senior currency strategist at Unicredit in
Milan.
Markets are also increasingly speculating that the European
Central Bank will lift interest rates ahead of the Federal
Reserve, after recent tough comments by ECB chief Jean Claude
Trichet about the need to keep inflation in check.
The euro <EUR=> edged lower to $1.3616, after hitting a
two-month high of $1.3688, according to electronic trading
platform EBS.
"Clearly there is a strong demand at the EFSF bond debut,
but there is always a risk of buy the rumour and sell the fact
for the euro," said Jeremy Stretch head of currency strategy at
CIBC World Markets.
"There are always structural issues in the euro zone but
that takes nothing away from the strong bids that we have seen."
The dollar index <.DXY>, which measures the performance of
the greenback against a basket of major currencies, was steady
at 78.053.
Debt from the euro zone's higher-yielding sovereigns has
also performed strongly in recent sessions on hopes the
stability facility will be strengthened.
But they came under pressure on Tuesday after a Spanish
government statement on the cost of recapitalising Spanish banks
was met with scepticism.
The Portuguese/German 10-year bond yield spread
<PT10YT=TWEB> <DE10YT=TWEB> widened to 380 basis points from
around 370 bps at Monday's settlement. The equivalent Spanish
spread widened 5 bps to 204 bps.
Spain's weak savings banks have 7 months to boost capital
through private investors or the state will partially take them
over, Economy Minister Elena Salgado said on Monday, adding that
their total capital requirements should not exceed 20 billion
euros. []
"Peripherals are coming out a bit weaker this morning -- the
market seems to be a bit underwhelmed by the Spanish
announcement of 20 billion to recapitalise their cajas. That's
at the low end of what the market thinks they need," a trader
said.
STOCKS STEADY
World stocks measured by MSCI All-Country World Index
<.MIWD00000PUS> edged up 0.1 percent after rising in the two
previous sessions.
Europe's FTSEurofirst 300 <> was flat while Tokyo's
Nikkei average <> climbed for a second straight session, up
1.2 percent.
An improved economic growth outlook and expectations of
upbeat corporate earnings have also buoyed equities recently.
Germany's Siemens <SIEGn.DE> was the latest company that has
beat earnings forecasts this quarter.
Three-quarters of the 84 S&P 500 <.SPX> companies that have
reported results so far in this earnings season have beaten
analysts' estimates.
Thomson Reuters Propriety Research estimated that the
earnings of the companies of the S&P 500 will rise on average
34.5 percent for the quarter, up from an estimate of 31.9
percent earlier this month.
Adding to the optimism, the International Monetary Fund
revised its world growth forecast higher and said a package of
U.S. tax cuts should give a lift to a global economic recovery
that had already begun to gain speed late last year.
[]
Copper <CMCU3> lost 1.5 percent, weighted down by worries
about Chinese inflation and a more bearish technical outlook,
while oil <CLc1> fell for a second straight day, down 0.3
percent to trade below $88 a barrel, as an expected rise in U.S.
stocks.
(Additional reporting by William James, Tamawa Desai and
Anirban Nag in London, editing by Mike Peacock)
